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The Gold-Plating of College Sports

The NCAA argues that amateurism drives down the cost of college sports. What if it's the other way around?

By Patrick Hruby | Sports on Earth | March 2013

Big lies require little ones. Take college sports amateurism. Four years ago, former UCLA basketball player Ed O'Bannon filed a landmark, ongoing antitrust lawsuit essentially arguing that a larger slice of the National Collegiate Athletic Association's multimillion-dollar revenue pie should be shared with the athletes who do the actual, you know, work. In a federal court filing last week, lawyers for the NCAA countered that doing so would mean the end of campus athletics as we know them, and maybe intramural hoops as well. Their supporting evidence included a series of teeth-gnashing written statements from college sports administrators, including a joint declaration from University of Texas athletics director DeLoss Dodds and women's athletics director Christine Plonsky that reads a bit like a ransom note.

"[Texas'] revenues are used to fund its athletics programs -- scholarships, staffing, educational programs and extra benefits, etc.," says the statement. "[Texas] has no interest in a model that would force us to professionalize two sports to the detriment of the balance of the athletics department's sports, fitness and educational programs."

In defending the NCAA status quo, Dodds and Plonsky hit a series of familiar notes: the repetition of educational, an Internal Revenue Service-soothing nod to the justification for college sports' tax-exempt status. The invocation of professionalize, a boogeyman term that in every other context is seen as a good thing.

Then there's the final clause, a not-so-veiled threat that roughly translates as follows:

Hey, if athletes in sports that people are willing to pay serious money to watch are allowed to realize their full market value, or even something approaching it, we won't be able to subsidize everything else. Such as women's rowing. And by the way, that's a real nice team you have there. It would be a shame if something happened to it. Or your shiny student recreation center.

Of course, this sounds plausible. After all, big-time college sports can be pricey. According to USA Today Sports, Texas' athletic department incurred an NCAA-high $138.3 million in operating expenses in 2011-12. Moreover, men's basketball and football players -- and God bless the latter's under-compensated, under-protected noggins -- pay most of the freight. To wit: the 8-5 Longhorns reportedly brought in $103.8 million during the same year.

Add in the fact that the vast majority of schools don't come close to approaching Texas' staggering $25 million profit operating surplus -- indeed, the NCAA claims that most Division I athletic departments lose money and rely on school subsidies -- and it's easy to buy what Dodds and Plonsky are peddling. Easier still to nod in unthinking agreement when Big Ten commissioner Jim Delany, the chancellor of the California State University system and the presidents of Utah State and Wake Forest all claim in separate statements that a shift to pay-for-play would likely require them to eliminate non-revenue producing teams, or perhaps drop out of Division I or Bowl Subdivision football altogether.

Don't be hoodwinked.

If amateurism is the big lie of college athletics, a hokey philosophical fig leaf for a tax-evading, labor price-fixing cartel, then the notion that college sports will collapse if revenue-producing athletes receive more money is a subsidiary strain of uncut malarkey. Mohammed Saeed al-Sahhaf was more honest. Pollyanna was less of a drama queen. Because while Dodds and others assert that paying football and men's basketball players less than their market rate keeps overall costs down -- thereby allowing athletic departments to fund feel-good charity projects like women's lacrosse -- it's arguably the case that the distorted amateur sports economy actually drives costs up. To understand why, start with a single number.

Remember the Great Recession? Dodds and his peers don't. According to a recent report in USA Today Sports, athletic directors at FBS schools are paid an average of $515,000 annually, an increase of more than 14 percent since … 2011. At the low end of the scale, Louisiana-Monroe AD Bobby Staub took home $109,923; at the high end, Louisville's Tom Jurich pocketed $1,401,915. Over the last two years, the number of athletic directors making $1 million or more has jumped from six to nine, while the number making $800,000 or more has risen from nine to 15. None of this is entirely new. Back in 2010 -- that is, when unemployment was at 9.9 percent and the nation was still reeling from the worst financial crisis since 1929 -- at least 10 public schools gave their athletic directors pay raises of $75,000 or more.

"It's the way it is, sir," Texas A&M President R. Bowen Loftin said of Hyman's compensation to USA Today Sports. "You learn that right away in this kind of league [Southeastern Conference] … it's a marketplace out there. I was very familiar with what ADs were being paid in the SEC in particular and across the other conferences in general."

Why is the pay so high? Athletic directors themselves offer a variety of reasons. They manage $100 million budgets and megabuck media and licensing contracts. They oversee dozens of teams. They hire and fire coaches, cope with scandals, navigate byzantine NCAA rules. Most importantly, they raise money. As Vanderbilt vice chancellor for athletics and university affairs and athletics director David Williams -- a member of the $1 million-plus club -- once told USA Today Sports, "if someone says what should I go learn to train to be this, I'd say go spend a year in law school, a year in business school and a year over in the college of education, and then take some communications stuff. And then get yourself a big old box of aspirin."

Also speaking to USA Today Sports, Louisville's Jurich was succinct. "I know one thing," he said. "The ADs around the country are earning their money." Well, sure. Athletic directors work hard. The job is demanding and requires a wide range of administrative and interpersonal skills. On the other hand, so does being an inner-city school principal, or a day care manager, or the chief executive of a large charity. Everyone with a job that doesn't involve theft or embezzlement earns their money. So never mind Jurich's self-serving platitudes. The question remains: why are athletic directors earning so much money? And the answer is simple.

When you don't have to pay competitive wages for your actual workforce, there's a lot more cash available to shower upon high-level bureaucrats.

In conjunction with the National Collegiate Players Association, a college athlete advocacy group, Drexel University professor Ellen Staurowsky calculated how much Division I football and men's basketball players would be paid if college sports shared revenues like the NFL and NBA. She also compared those numbers to the values of their athletic scholarships; calculated the shortfall between those scholarship values and the actual cost of attending school; and calculated how far those numbers leave many college athletes below the federal poverty line. Here's how football players from Texas and Michigan stack up:

Source: Ellen Staurowsky

The result? Two seasons ago, Texas' football team generated $103.8 million in revenue; during the same season, Staurowsky estimates, the team's total labor payroll-- excuse me, student-athlete participation expense -- of 85 scholarship players at $21,090 per scholarship was only $1.8 million. (Actually, that number might be too high: at a large school like Texas, the cost of giving 85 football players free tuition is essentially the cost of 85 extra classroom chairs.) Given the massive disparity, is it any wonder that the school can afford to make Dodds a millionaire? Or that his inflated salary helps drive up salaries for athletic directors across the board?

"Where does the money go?" says Syracuse University sports management professor Chad McEvoy. "It goes into the latest and greatest video board in the football stadium. It goes into increasing administrative costs and salaries. These schools end up having huge sports information staffs and athletic study center staffs. Compare the staff directories of a college athletic department with that of a professional sports team that might make several times more revenues. The [pro team] may have a handful of marketing and communications people. The college has dozens."

Within college athletic departments, this works in two ways. Both cause costs to rise. The first involves recruiting. Schools can't bid directly for players -- not without incurring the wrath of the NCAA and/or intrepid Yahoo Sports investigative reporter Charles Robinson -- so they do so via indirect inducements. Like the Alabama weight room. Or Kentucky's $7 million basketball dormitory, which provides players with a private chef. Or the presence of big-name, bigger-salary coaches such as Kentucky's John Calipari ($5.2 million) and Alabama's Nick Saban ($5.62 million). According to Duke professor Charles Clotfelter's book "Big Time Sports in American Universities," the average salaries of football coaches at 44 Division I schools rose from $273,300 in 1985-86 to just over $2 million in 2009-10. In a 2009 survey of 95 Division I university presidents, most said coaching salaries were "excessive," and that escalating compensation was the "single largest contributing factor" to unsustainable athletic spending growth. Stanford University economics professor and antitrust expert Roger Noll thinks the presidents are misdiagnosing the problem.

"The cause of the growth in spending, including escalating coaches' salaries, is growth in the demand for college sports combined with a competitive market for coaches," Noll writes in a report submitted in the O'Bannon trial. "Eliminating competition for student-athletes transfers money to coaches that otherwise would go to student-athletes. As long as revenues from basketball and football continue to grow, rising salaries for coaches will absorb much of this growth, as has been the case for the last two decades."

The second source of gold plating is less obvious. Follow along. A traditional for-profit business spends money in order to increase revenues (that is, profits). A traditional nonprofit spends money to increase revenues, and then spends those revenues on charitable causes, like fighting malaria or supporting breast cancer research. As nonprofits, college athletic departments also spend money to increase spendable revenues -- but unlike, say, the Susan G. Komen Foundation, their only charitable causes are their own operations. "If the Texas athletic department was a normal business, its owner would stick $40-50 million a year of profit into his or her back pocket and be incentivized to reduce costs," McEvoy says. "But athletic departments have a different model. They're incentivized to ramp up revenue generation and spend everything they bring in. That's why it's such a fallacy when the NCAA puts out reports saying that the vast majority of their athletic departments lose money. They're not profit-oriented organizations. They can't turn a profit. It's like watching college basketball and saying, 'the game I watched last night was boring because no teams scored any touchdowns.'"

According to Rascher and Schwarz's blog, a seriesofstudies -- commissioned by the NCAA, no less -- have found that for every new dollar of revenue athletic departments generated between 1993 and 2007, they also generated almost a dollar in new expenses. Perhaps major conference athletic departments are spending money to make money; more likely, they're simply enjoying massive revenue infusions made possible by mushrooming football and men's basketball television contracts. Staurowsky calculates that athletic departments in cash-rich Bowl Championship Series conferences spend an average of roughly $350,000 more per team on women's lacrosse, men's swimming and other non-revenue sports than their less-well off Football Championship Subdivision counterparts. Is the extra spending a must? Probably not: many FCS schools manage to field competitive Division I teams, such as Brown's 2011 championship rowing team or Georgetown's NCAA runner-up men's soccer squad.

Similarly, Rascher and Schwarz examined non-revenue sports spending between Division I schools with major football teams (like Syracuse) and those without (like Georgetown) in 2009-10 and 2010-11. They found that expenditures for the major football schools were higher across the board -- and not, they argue, because having a BCS football team causes lacrosse sticks and athletic directors to become more expensive.

Bigger Spenders

Using financial data from the U.S. Department of Education, economists Dan Rascher and Andy Schwarz calculated the average spending difference between Football Bowl Subdivision schools and Football Championship Subdivision schools on various non-revenue college sports:

Source: Sportsgeekonomics

"Say I'm athletic director, and my football team makes $20 million in profit on $60 million in revenue -- and that's with the crazy inflated coaching pay already baked in," says an expert familiar with the finances of college sports who asked to speak anonymously. "What am I going to do with the money? Well, a boy can never have too nice a bus for the lacrosse team. And I'd like a much nicer office. And I shouldn't be driving a car that's any less nice than the ones my coaches do. Oh, and yeah, if I'm the 'boss' of a coach making $6 million, I think I deserve one-sixth of that."

Back to the NCAA's lawyers, and the claim from Dodds and Plonsky that dumping amateurism for some form of revenue-sharing with football and men's basketball players would be "detrimental" to "the balance of athletic department sports, fitness and educational programs." Right. In a more equitable, less Foxconn-inspired system, here's what would happen to said balance: Coaches would be paid less. Athletic directors like Dodds and Plonsky would be paid less. College weight rooms and athletic facilities -- such as Oregon's $41.7 million Jaqua Center -- likely would no longer seem decreed by Kubla Kahn. Miami of Ohio might not erect a bronze statue of Baltimore Ravens coach John Harbaugh outside Yeager Stadium, the better to join preexisting statues of Paul Brown, Bo Schembechler, Weeb Ewbank, Ara Parseghian, Earl "Red" Blaik, Carm Cozza, Paul Dietzel, Saparmurat Niyazov and John Pont. College sports as a whole would no longer function as what Nobel Prize-winning economist Gary Becker describes as a reverse-Robin Hood system in which the market value of young, predominantly African-American football and men's basketball players is diverted to pay (and overpay) for predominantly white, middle class sports like swimming.

"A large fraction of the Division I players in basketball and football, the two big money sports, are recruited from poor families; many of them are African-Americans from inner cities and rural areas," Becker writes. "Every restriction on the size of scholarships that can be given to athletes in these sports usually takes money away from poor athletes and their families, and in effect transfers these resources to richer students … "

So yes: Sans amateurism, non-revenue-producing college teams likely would have to make do with less financial support. Does that mean they would be eliminated outright? Not necessarily. Not if schools value and fund those sports the way they value and fund student theater, music, debate and other activities that aren't money-making propositions.

Actually, the last part isn't even hypothetical. It's called Division II and III. A magical realm of rainbows and unicorns, where in 2011 there were 223 men's college lacrosse teams -- compared to 61 in Division I.

"It's like [the NCAA is arguing] that if we have to pay stipend to our quarterback, university intramurals is out the window," McEvoy says. "There's no way. Study a Division III athletic department for 10 minutes. You can still provide excellent opportunities for athletic and academic success for students without spending $150 million a year like Ohio State. It's possible. If Division I departments were to operate with that sort of efficiency, there would be tens of millions to give back to the larger university budgets."

In the meantime, the big lie continues. The little one, too. Amateurism's ill-gotten gains keep sloshing around, filling the gold-plated cups of administrators such as Dodds. Like water, the money has to flow somewhere. Three years ago, the University of Michigan hired David Brandon as its new athletic director; while news reports marveled that Brandon was taking a substantial pay cut from his previous job as the chief executive of Domino's Pizza, his base salary of $560,000 was still 47 percent higher than that of his predecessor. School president Mary Sue Coleman said the bump was necessary, because it "addresses the trends in the market." Right. The market. Speaking of which, Brandon subsequently hired assistant football coach Greg Mattison away from the Baltimore Ravens. The price? A cool $750,000 a year -- the largest salary ever for a Wolverines assistant coach, about 32 times greater than the estimated value of a Michigan football scholarship. "People who have talent and bring something significant to the party expect to be paid fairly," Brandon later told USA Today Sports. "I have no problem stepping up and paying talent for what they deserve." Of course not.